The Federal Communications Commission (FCC) is set to vote this coming Thursday, April 23, 2020, on a proposal to revamp funding to support the buildout of mobile networks in rural areas. The new "5G Fund for Rural America" is not merely a reworking of prior funding mechanisms, but also focuses on deployment of significantly higher-speed networks than those supported by prior FCC programs.

The new proposal would make up to $9 billion available over 10 years to deploy 5G networks in rural and underserved areas, including Tribal lands, possibly based on data other than the maps that have been the basis of such programs for nearly a decade. The proposal also earmarks $1 billion for precision agriculture and proposes specific carve-outs for T-Mobile, which recently made significant deployment commitments as part of its merger with Sprint.

The FCC's proposals are summarized in a draft Notice of Proposed Rulemaking and Order (Draft NPRM) released in advance to allow input before the formal proposal is adopted. The following summarizes key elements of the draft proposal; we will provide an update to the extent that the final rulemaking document materially differs from the Draft NPRM.

Updates to USF Fund

The crux of the proposal is to update the FCC's existing universal service fund (USF) program to support deployment of mobile networks in rural and other areas that are costly to serve. The Draft NPRM proposes to repurpose the $4.53 billion Mobility Fund Phase II budget for the new program, and provide additional funding for a possible total of $9 billion.

The FCC's existing Mobility Fund has been dogged by complaints that the maps on which the FCC has based its funding decisions were flawed. The Draft NPRM asserts that FCC staff recently confirmed that the maps overstate the extent to which the nation's carriers provide adequate coverage in the relevant areas.

The draft asks whether the FCC should nevertheless fund buildouts based on the rurality of the relevant geographic area, and then prioritize areas that have historically lacked 3G or 4G, rather than waiting to remedy the shortcomings of the maps. To qualify for the new 5G Fund, the FCC is proposing requirements that carriers achieve speeds of 35 Mbps download and 3 Mbps upload, or possibly 50/5 Mbps.

The Draft NPRM also proposes new requirements for recipients of legacy funding and seeks to leverage T-Mobile's 5G deployment commitments, made as a condition of the approval of its merger with Sprint, by carving out the areas in which T-Mobile will deploy 5G from eligibility for new 5G funds. If the FCC were to push forward before obtaining updated maps, it asserts that as much as 67 percent of the land in the United States would be eligible for support from the new 5G Fund (excluding Alaska, Puerto Rico, and the U.S. Virgin Islands, which have their own specific programs).

In line with its post-2011 USF reforms for High Cost funding, the FCC proposes to use a competitive "reverse" auction to disburse support. The FCC proposes a two-phase process, using a multi-round descending clock auction that awards support to the provider willing to serve each area at required performance levels for the lowest amount of support.

In Phase I, the FCC would disburse up to $8 billion, with $680 million reserved for Tribal lands.

In Phase II, the FCC would award "at least" $1 billion to support networks that facilitate precision agriculture, the first foray for the FCC and the USF into specifically supporting the agriculture industry.

The following summarizes significant aspects of the proposed 5G Fund from the Draft NPRM.

Timing

One point of significant contention is the timing for awarding the subsidies. The Draft NPRM recognizes the conflict between the need for rapid disbursement and deployment of advanced mobile networks, particularly in light of COVID-19, and the desire to more accurately identify and target unserved areas.

The Draft NPRM proposes two potential paths. In the FCC's proposed "immediate" option, the auction would start in 2021, defining eligible areas based on current data regarding the "degree of rurality" using USDA Rural-Urban Community Area (RUCA) Codes and focusing on areas historically lacking 3G or 4G deployment.

In the "delayed" option, the FCC proposes to first engage in data collection regarding providers' actual deployment of service meeting the speed and coverage thresholds so that it can update its maps, and then use those updated maps to determine where subsidies are needed. The FCC notes that it found errors in reporting of coverage by carriers in 2019, and that the recently-enacted Broadband DATA Act requires the FCC to map broadband coverage in the United States. Under this second option, the FCC would delay the start of the auction until "at least" 2023. (The FCC also points out that Congress has not yet appropriated funds for the FCC to implement the Broadband DATA Act).

These two options will be a significant topic of comment and debate, with some parties already arguing that the two options create a false choice.

Framework for the 5G Fund

Term

The Draft proposes a 10-year term for each phase, with monthly support disbursements.

Budget

The Draft proposes a total budget of $9 billion, with up to $8 billion for Phase I, of which $680 million would be reserved for Tribal lands (which is double what was anticipated for Tribal Lands under the existing Mobility Fund). Bidding for Tribal areas would take place at the same time as other Phase I areas.

Auction Mechanics

As noted above, the Draft proposes a multi-round, descending clock format. Winning bids would be determined based on support price per adjusted square kilometer, with each eligible area having an associated number of adjusted square kilometers reflecting particular factors, such as difficult terrain. The opening clock price, multiplied by an area's adjusted square kilometers, would represent the highest support amount that a winning bidder could receive.

The FCC proposes to include all eligible areas nationwide in Phase I, so that bidders compete for support across all areas at the same time.

Minimum Geographic Area for Bidding

The Draft proposes to use census tracts containing areas eligible for support as the minimum geographic area for bidding. However, the Draft asks whether areas larger than census tracts may be more suitable. The Draft also proposes to remove any tracts that only have de minimis eligible areas.

Public Interest Obligations and Performance Requirements

The FCC proposes a set of public interest and performance obligations as conditions of receiving support. The Draft sets forth proposed obligations for legacy recipients and new recipients under the 5G Fund.

For new participants, the Draft proposes service milestones similar to those used in the Rural Digital Opportunity Fund, CAF Phase II, and the Uniendo Puerto Rico & Connect USVI Fund proceedings. The support recipient must commercially offer service meeting the 5G performance requirements to at least 40 percent of its support areas in a state by the end of the third calendar year, 60 percent by the end of the fourth calendar year, and 80 percent by the end of the fifth calendar year. The Draft also proposes interim reporting milestones.

For recipients of legacy High Cost USF subsidies, the FCC proposes to require them to file an initial report describing their current service offerings in their subsidized areas and how the legacy support is being used. The FCC further proposes requiring legacy support recipients to provide 5G broadband service that meets the established performance requirements to at least 85 percent of their subsidized areas by the end of the fourth full year. The Draft also proposes interim deadlines of 40 percent within two years and 60 percent within three years. Finally, the FCC seeks input on how to incentivize legacy support recipients to participate in the new auctions.

Speed, Latency, and Service Plans

The Draft asks whether it should require speeds of 35 Mbps download and 3 Mbps upload, as in the Puerto Rico-USVI Fund – apparently 35/3 Mbps being the lowest it will require – or whether it should require a higher performance requirement, such as 50/5 Mbps.

The Draft further proposes to require a minimum cell-edge download speed of 7 Mbps and upload speed of 1 Mbps with a 90 percent coverage probability and a 50 percent cell loading factor. The Draft seeks comment on potential alternative targets as well.

Additionally, the Draft proposes to require latency of 100 milliseconds or less per roundtrip from the device to the edge of the service provider network and back, which the FCC deemed "low latency" in its Rural Digital Opportunity Fund order.

Finally, the Draft proposes that recipients be required to provide at least one service plan in eligible areas that includes a data allowance that would correspond to the average U.S. subscriber data usage. The Draft also proposes to require the recipient to offer rates that are reasonably comparable to rates offered in urban areas. Recipients would also be required to allow reasonable collocation by other carriers on all 5G network infrastructure constructed with USF support in the support area.

Reporting and Compliance Requirements

The Draft proposes to require annual reports of compliance, including using predictive propagation modeling combined with drive tests. The Draft would require submission of supporting data in addition to the coverage maps so that the FCC's contractor, USAC, can evaluate compliance.

Eligibility Requirements

The FCC proposes to impose eligibility requirements that are consistent with those used for Mobility Fund Phase I, CAF Phase II, and the Rural Digital Opportunity Fund.

ETC Designations

Only ETCs are eligible to receive support from the new 5G Fund (consistent with other High Cost programs), but the FCC proposes to permit an applicant seeking to participate in the 5G Fund auction to obtain ETC status after winning an auction as it has done in past programs.

Spectrum Access

The Draft proposes that an applicant be required to have access to spectrum in an area that enables it to satisfy the applicable performance requirements to receive 5G Fund support for that area.

Financial and Technical Capability

Applicants would be required to prove their financial and technical capability as part of the application process.

T-Mobile/Sprint Transaction Related Conditions

In light of the commitments to serve rural areas made by T-Mobile as a condition of approval of the T-Mobile/Sprint transaction, the FCC tentatively concludes that T-Mobile should not be permitted to use any eligible areas for which it might win 5G Fund support to fulfill its transaction-specific rural commitments.

The FCC asks whether T-Mobile should be allowed to make pre-auction binding commitments to deploy 5G services in eligible areas within the adopted deployment milestones for the 5G Fund without receiving 5G Fund support and otherwise prohibiting T-Mobile from participating in the bidding process.

Alternatively, the FCC seeks comment on permitting T-Mobile to identify areas before the auction where it intends to deploy 5G service and removing these areas from the list of areas eligible to win support in the auction.

Application Process

The Draft proposes a two-stage application process consisting of a pre-bidding short form and a post-bidding long form application.

Working from its existing rules for USF auctions, the short-form application would include disclosures confirming matters such as ownership, technical and financial qualifications, and previous history providing mobile service, among others. The proposed rules limit filing multiple applications and joint bidding arrangements.

The long-form application would require more detailed disclosure of items such as ownership, agreements, ETC status, the project description, and financial and technical capability. Similar to its prior requirements, the FCC proposes submission of letters of credit, with the requirement differing based on the applicant's experience.

Transition From Current Funding Mechanisms

The Draft includes multiple proposals for transitioning from legacy High Cost support to 5G Fund support. First, it makes clear that the new 5G Fund would be a comprehensive mechanism for High Cost support for mobile carriers, and as such, it proposes to transition all funding from Mobility Fund Phase II to the new program. Questions raised for legacy support recipients include whether to allow flexibility to use legacy support within any of the areas for which it receives legacy High Cost support only during a limited transition period.

Further, the Draft raises whether to allow a mobile competitive ETC the flexibility to reallocate its legacy support among its subsidized areas, including an adjustment factor to disaggregate legacy support which would assign a weight to certain geographic areas reflecting, among other things, differing relative costs of service.

The Draft also proposes a detailed transition schedule for legacy recipients of support. Notably, similar to Mobility Fund Phase II, legacy support would be converted to 5G Fund support. That would, in turn, be maintained for no longer than five years or subject to phase-down over two years, depending on whether the area was eligible for 5G Fund support, and if eligible, whether there was a winning bidder for the area in the auction.

For legacy support that is subject to the two-year phase-down, support would be provided at two-thirds of the level of disaggregated legacy support for the first 12 months and then one-third for the next 12 months. Notwithstanding a transition schedule, all legacy support at the frozen identical support level would cease five years after the effective date of an order adopting the proposal.

Finally, the FCC seeks comment on whether a legacy support recipient should be required to participate in the 5G Fund Phase I auction and place a bid on the area to be eligible to have its support maintained. It also tentatively concludes that legacy support recipients should be subject to additional public interest obligations and performance requirements to continue to receive legacy support.

Conclusion

Given the significant amount of money proposed to be distributed, this Draft NPRM has already garnered significant attention and commentary. Recipients of legacy funding are particularly interested in the process for continuing their support or transitioning to the new Fund. Carriers who do not currently receive support are advocating that the FCC move quickly to award and distribute subsidies.

The proposed technical and service requirements will also be an important issue, particularly in light of anticipated reporting requirements under both this NPRM and the new Broadband DATA Act.

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